Is a capital purchase worthwhile for your urology practice? Here's how to decide

April 1, 2011

Physicians don't have the luxury of making bad decisions about purchasing new equipment.

Key Points

Making a capital purchase should be divided into financial and non-financial components. Non-financial evaluation is especially important for investments that do not immediately generate revenue, such as an electronic medical record. Ask yourself these questions:

Conduct a financial evaluation

If the conclusions you reach after asking yourself these questions support the investment in new medical equipment or new technology, the next step is to conduct a complete financial analysis on the investment.

In most urology practices, frequent decisions must be made about investments that do not directly generate revenue. How do you evaluate the finances of these decisions? Unfortunately, there is no easy answer. If the investment is large, such as an EMR, conducting a financial analysis to quantify the increased revenues (eg, increased charges due to better documentation), costs (eg, software, hardware, training), and cost savings (eg, less staff time spent looking for charts, lower photocopy expenses, less transcription expenses) can be illuminating and help you make the decision.

A complete financial analysis involves gathering all of your pertinent financial information and then using that data to analyze the profitability of a particular investment. Gathering the data will help you to identify the estimated incremental cash flow related to the investment (the additional expenses and revenues that you can anticipate as a result of the investment), which can show you how a particular investment will improve your bottom line.

While many urologists who are evaluating a potential investment for their practice will stop here, it's important to further analyze these data with a break-even analysis, a payback analysis, and a net present value analysis (see "Calculating ROI: Three key analyses"). These analyses can show you the short- and long-term financial implications of the investment and the length of time it will take for the investment to pay itself off. While conducting one financial analysis on a potential investment may be adequate in some cases, in others you might get the most complete financial perspective by conducting the analysis using data estimations based on "worst-case," "most likely," and "best-case" scenarios.